The Relationship between International Political Economy & Economics

(1) What is the relationship between IPE, IR and Economics and how has this relationship changed over time?

International Political Economy (IPE) is a social science, aiming at analyzing and understanding of the international and global problems with the help of interdisciplinary tools and theoretical perspectives. Initially this social science was developed as a part of International Relations, but later it took its own positions. Development of IPE is the result of the ruining of the borders between economies, politics and various social science disciplines. Currently the best approach towards understanding and solving of the problems is based upon multidisciplinary approach. “IPE is the study of a problématique, or set of related problems. The traditional IPE problématique includes the political economy of international trade, international finance, North-South relations, transnational enterprises, and hegemony. This problématique has been broadened in recent years to issues raised by globalization and climate change.” (Veseth 2004). Nowadays the connection between International Politics and International Economics has become the subject of theoretical research and analysis. Nation – states are able to have their impact upon international trade relations and monetary flows, these factors in their turn are influential for the environment, which is created for nation-sates for taking certain political paths and making economic decisions. Sometimes International Economics is considered by policy-makers and researchers without great reference to International Politics.

In the 1970s and 1980s IPE occupied its central position in the International Relations community and was utilized in the form of analysis. The major questions, which were investigated during this period, were the issues of international trade, North-South relations, the problems of hegemony and international finance. One more concern, that of globalization, was added later, namely in 1990s. Starting from 2000s IPE was treated in relation to global threats and crises, such as for example global climate change or lack of global financial stability. As a discipline International Relations developed after the World War I, as there was an evident need to focus more upon the research of international relations and find the ways to achieve international security in order to avoid repetition of the war. The political and economic developments of 1960s and 1970s of the international scene changed the situation. After the World War II the Bretton Woods System was established, but it collapsed due to abolishment of the convertibility of dollar to gold in 1971. The collapse of the Bretton Woods System was vital for the increase of the uncertainties in the spheres of international monetary and financial systems. The system turned into managed floating system. In order to manage the problems of the international monetary system, G7 was created and included such countries as US, Germany, France, Japan, UK, Canada and Italy. The oil crisis of 1973 made the problems  of the world economy even more serious. “The world economy entered the stagflation period when economic stagnation and high inflation were seen simultaneously. There were negative developments in the international trade system as well as the international monetary and financial system.” (Veseth 2004).

Both politics and economics treat the issues of international trade from different positions on the basis of various frameworks for analysis. The states are focused upon such relatively stable factors as geography and population and markets are defined with the help of linkages, moving backwards and forwards. “The borders of markets are dynamic, transparent, and porous; they rarely coincide exactly with the more rigid borders of states. A few markets today are even global in their reach. When trade within a market involves buyers and sellers in different nation-states, it becomes international trade and the object of political scrutiny.” (Veseth 2004). The central role in the IPE analyses was played by international trade and this remains so till the moment. International trade contributes to creating of the picture of the most significant state-market relations and tensions. Using the example of the Cold War, it is possible to trace how international trade was a part of the structure of American hegemony and at the same time a tool for East-West strategic approach. In 1980s and 1990s international trade was serious means for consolidating of regional interests. The process of globalization and empowerment of informational technologies introduced new controversial issues to IPE analysis. International Political Economy is defined with the help of the constituent parts of International Finance. The IPE of International Finance is made up of analysis of exchange rate policies, international capital movements, international financial institutions, for example the International Monetary Fund and the World Bank. The major issues in IPE studies of finance are related to reactions to financial crises, the impact of financial markets upon economic stability and options for the states for regulating of the financial markets.

The Cold War International relations theory was developed with inclusion of the theory of hegemonic stability. A hegemon is generally defined as a powerful state, which provides public goods to the international system. Under the notion of public goods stable money, system of free trade and security are considered. “Providing these public goods is costly, but the hegemon gains even if it disproportionately bears the expense alone. If the world system prospers, the hegemon necessarily prospers as well. In fact, this provision of public goods may be a strategy to secure or extend the hegemon’s dominant position.” (Veseth 2004). According to the theory of hegemonic stability, the world system could develop under the condition of hegemon’s organization of the international political and economic system along with managing of the provision of international public goods. Historical examples of the connection between hegemony and prosperity are the periods of 1815-1873 for British hegemony and post 1945 period for the American hegemony. The dangerous thing about hegemony is that as soon as it breaks, the whole international system faces conflicts and lack of order. Many researchers state that hegemony is possible only in the form of temporary condition.

The meaning of globalization for international relations, as well as for International Political Economy could not be underestimated. The problematique of globalization differs from the traditionally accepted state-centered concerns about the International Relations, which explain why many researchers prefer to treat IPE separately from International Relations. Globalization is the force, which makes the connections and interrelationships between politics, culture, business, technology, environment, migrations issues and so on, as important aspects of IR. “At the heart of the globalization problématique is the question of the state. Many scholars argue that the nation-state is increasingly incapable of dealing with global issues and has lost significant power relative to other actors in the global economy. For example, MNCs can easily move capital from one country to another, and this mobility has allowed them to reduce the taxes they pay.” (Veseth 2004). The process of Globalization is sophisticated enough to make the researchers work out their new theories for analyzing and explaining of global interactions of the modern world. One of such theories is constructivism, considering the power of ideas in the process of perception and responding towards global problems by the states. Globalization leads to a number of social and environmental challenges, this fact reinforces the interest of IPE researchers towards globalization. There is a clear connection between economic inequality growth and its subsequent effects upon social stability and democracy. Along with development of globalization IPE is forced to work out the theories for explaining of the real nature of global political economy.

(2) To what extent is the mercantilism vs. liberalism debate that once defined political economy still relevant today?

In the 16th and 17th centuries the economic policies of the world super powers, as well as the whole economic system, were related to the term “mercantilism”. Mercantilism could also be applied in the modern world in order to describe some policies of the governments. Before a limited number of states had control over the political and economic international situation. These were France, Britain, Spain, Portugal, Turkey and the Netherlands. These countries created their own international economic systems in order to import the needed goods from the territories of other countries and to export the surplus goods from their territories. The imperial powers had also their trade relations, but they were not commercial partners. The concept of mercantilism has not disappeared with time and exists till nowadays. During the times of the Industrial revolution and the age of Enlightenment it was opposed by Economic Liberalism. “In the nineteenth century a significant precursor to contemporary globalization took place in which there was a huge growth in the volume of trade, due to a rise in both the economic capacity to and political willingness to engage in international commerce. A great leap in economic production occurred, due to the emergence of manufacturing industries, allied to an intellectual shift in favor of seeing other states more as partners than rivals in the international economy.” (Gilpin 1987). In 1860 the two mercantilist rivals Britain and France signed a treaty, supported by the Liberal politicians, which led to reduction of the trade barriers between the states. At the beginning of the 19th century Economic Liberalism started to flourish. Most of the governments started to reconsider their initial approach towards acquiring resources for themselves, instead they considered the opportunities of mutually advantageous global trade. However, by the beginning of the 20th century mercantilism returned to the global scene in the context of global military conflicts and development of extremist ideologies, characteristic for that historical period. “A revival of cordial international relations between the great powers and of liberal thought again occurred in the 1920s, in the wake of the horrors of the Great War, but a potential new era of economic and political globalization came to a crashing halt with the world’s worst ever global economic recession, the Great Depression, which started in 1929.” (Gilpin 1987).  The effects of the “Wall Street Crash” had negative impacts upon international trade, which supported the idea of close interconnectedness between international relations and economic in the world. As soon as the world managed to overcome the consequences of the depression and results of the Word War II, striving for industrial grow and development of international trade relations, the leading states aimed at taking such political steps in the international scene, which would help to avoid repetition of Great Depression or another world war.

Mercantilism is related to traditional, still significant approach to International Political Economy, challenged by Economic Liberalism. The height of mercantilism was in the Middle Ages, when such self-serving strategy of doing exports and imports for the sake of accumulating of wealth existed, then this system was widely applied later, but certainly not by all states. Mercantilists support the position that governments should involve themselves into international trade relations with the aim to protect the interests of their states and their citizens. Mercantilism is based upon the logic of Realism, assuming that the world is anarchic and all the states are self-serving and inward looking.  In such conditions there is no way to trust other countries, giving them their part of the comparative advantage, as they might choose other opportunities by other states. The basis for the state’s power is hidden in its economic resources. The task of the government is to protect those resources and this is the reason, why according to mercantilism all imports should be limited only to absolutely necessary goods, which can not be produced by the state. The supporters of mercantilism state that international economics is not cooperative, rather it is competitive. This means that there is no reason to make the attempts to create an international system of “collective goods”, as there still will be winners and losers. Development of free trade would bring increase of the amount of goods, but this does not meat that all states would equally benefit from this increase. Weak states would be weakened further by their stronger counterparts. Mercantilism thus motivates governments not to rely upon other states. Instead they should strive for self efficiency. “An extreme manifestation of self-sufficiency is the policy known as autarky which is the pursuit of total self-reliance. This would, of course, be straightforward for governments of countries blessed with all the natural resources they could want but, in practice, this has never been achieved.” (Balaam 2008). Speaking about modern mercantilist strategies, it is important to note that they do not reveal such tendency towards autarky, instead they are focused upon accumulation of their domestic resources and working out of the measures for protecting them.

Economic liberation dates back to the era of industrialization and the enlightenment. It was developed in the frames of the political and philosophical movement, moving through Western Europe and North America. This movement was based upon the assumption that all individuals are naturally inclined towards mutual cooperation with each other and the same tactic could be applied by the governments, controlling the situations of the whole states. Application of liberalism in the economic sphere adhered to several principles: free trade, invisible hand, comparative advantage, trade bringing peace. The belief in free trade is fundamental for economic liberalism. It presumes minimal intervention of government into the international trade affairs, and the businesses should not be limited in their exporting and importing goods from other countries. The principle of invisible hand is based on the metaphor, referring to the concept of “market forces”, which is widely accepted today. “In a direct riposte to Conservative (and Mercantilist) fears that an unregulated economy leads to anarchy and exploitation as greedy individuals enrich themselves without regard to the suffering this may inflict on others, the invisible hand posits that society would be better off without government interference because it is this that distorts the natural inclination of people to work together, exchange goods and make money.” (Balaam 2008). According to the liberal position the task of the government was to let the citizens to use economy to enrich themselves. Those governments, which set limit for imports due to the fear of cheaper competition, were considered to reduce the volume of international trade. In this case citizens of the country were forced to pay more for the goods, which they could have purchased for lower prices in the conditions of free markets. David Ricardo was the protégé of Adam Smith and he worked out his theory of comparative advantage. This theory aimed at explaining the mechanisms how free trade could bring more wealth to all nations of the world. It stated that development of some industries in various countries was rather supported or limited due to various reasons, such as climate or the abundance of natural resources. These countries should have the chance to use these resources for their advantage and let the other goods, which could be more efficiently produced in different countries, be imported to them. One more principle of liberalism states that trade brings peace. “In addition to the economic rationale for free trade, Economic Liberalism, in line with Liberal political thought, sees that there are political gains to be had from throwing off the shackles of government protectionism.” (Balaam 2008).  If the countries are united by their commercial and economic efforts, if they have the corresponding commercial connections, then there are more opportunities for them to maintain peace. The major catalysts for these ideas were the World Wars, which had proved that collision of interests of different countries is dangerous for international relations. “Concerns had begun to rise of the possibility of another in a long line of wars between them due to rival interests in Italy. In more recent times World War Two was the catalyst for the binding together of Western European states into the economic bloc that has now evolved to the European Union.” (Balaam 2008).

The characteristics of both mercantilist and liberalist positions could be traced in the modern world. Irrespective of the fact that countries take international political efforts with the aim to liberalize international trade relations, creating GATT or World Trade Organization (WTO), still the modern global system is far from becoming absolutely free and it is still possible to trace the application of mercantilist measures by various governments. On the one way reducing of industrial tariffs could be considered a good sign of linearization of the trade in the sphere of textiles of food; on the other hand the situation in such industries as agriculture is absolutely the opposite.

Extra credit question

Benjamin Cohen’s book, International Political Economy: An Intellectual History, sparked a heated debate among International Political Economy (IPE) scholars, especially this debate was related to his subdivision of IPE into American and British. Moreover, Cohen insisted that those two should have been treated as rivalries to each other. At the same time he stated that none of the schools could be complete without the other. “Generally, the American school of IPE is often understood to reduce the power of the “E” in its study, by establishing research as “essentially a subset of IR”, whereas the British school is “more open to lings to other areas of enquiry” (Cohen 2008).

International Political Economy developed as a sub-discipline within International relations and global economic developments in 1970s. IPE has the task to analyze the relationships between international policies and international economy. In order words it should find out how the political and economic factors are able to interact at the global level. Susan Strange (1994) wrote: “International relations asked the question why nation-states continued to go to war when it was already clear that the economic gains made in war would never exceed the economic costs of doing so… International political economy today…asks why do states fail to act to regulate and stabilize an international financial system which is known to be vitally necessary to the „real economy‟ but which all the experts in and out of government now agree is in dangerous need of more regulation for its own safety?” According to Gilpin (1987) IPE could be defined as a research area, which is focused upon analyzing of the dynamic relations between “the state” and “the market”, as well as the potential problems, which develop from this coexistence in the modern world. IPE considers the roles, performed by the states and the markets in global economic developments. “It analyzes rules, laws, norms and organizations that are called institutions, which shape the world economy and markets. IPE examines how these institutions are established, developed and how they affect the world economy.” (Woods 2009) When IPE emerged in 1970s, it soon transformed into a dynamic and profound research discipline, vitally important for the world with its interconnected groups and individuals, nation-states and other actors of the international system.

Such historical events and World War II and the Cold war intensified the need to continue the research of the issues of international relations, first of all those, which were related to security, war and piece on the international scene. During that period economic power was considered to be an important component of national power, still the international economy issues were mostly neglected in the area of international relations research until 1970s. The central positions were still occupied by the political issues.

IPE concerns “the unequal pace of change in the international political system and in the international economic system, and the effects of this unequal rate of change on the international society, and on the relations of states with each other.” (Strange 1994). The fact is that those changes were ignored by most researchers, as they were focused upon political and strategic relations between national governments.

In 1950s and 1960s states were trying to make the barriers for international trade lower, crating the framework of General Agreement on Trade and Tariffs (GATT). Developed countries limited imports from developing countries with the help of non-tariff barriers. Developing countries did not accept the protectionist policies of developed countries, as they were placed to the subordinate position in the frames of the international economic system. They demanded the introduction of the New International Economic Order. “The main aim of the New International Economic Order was to reform the international trade, investment, monetary and financial system. Developing countries demanded more voice in the decision-making mechanism of international institutions such as IMF and World Bank, which had been an expression of American hegemony. (Cox 1981). Along with this they demanded the restructurization of the international financial and monetary systems. Thus the steps of developed countries were not successful, as they lacked support from the side of the developing countries. The international, economic and political aspects had their effect upon international political economy investigation, and IPE became a sub-discipline of International Relations. Cohen assumes that Robert Cox and Susan Strange were the leading “pioneers” of the British school of IPE. Cohen (2008) wrote that Susan Strange held “a strong distaste for anything that might be regarded as mainstream thinking”, which meant that British IPE was often considered as inter-disciplinary. To the same extent Cox was also considered to be inter-disciplinary, as he also revealed his critical perception of the American system of state-centrism. Cohen (2008) commented that the American school’s reductionism of the E in investigation of IP was changed completely by Dr. Cox, as he was able to predict the nature of states and future world order. Professor Cohen suggested that the two IPE schools could communicate more with each other, could “build bridges”, as it could have advantages for the future. But most of Cohen’s critics did not support such possibility. They assumed that there were too many significant differences between the two schools and it could be difficult to find the common ground for both. Moreover, there could be the risk of making this gap even bigger, not smaller, as a result of making them cooperate.

Works cited:

Balaam, David, N. Introduction to International Political Economy. New Jersey: Pearson, 2008

Cox, R. W. Social Forces, States and World Orders: Beyond International Relations Theory. Millennium: Journal of International Studies, 1981

Cohen, Benjamin J. International Political Economy: An Intellectual History. Princeton University Press, 2008

Diep, Anh. Comparing two of the main ideologies of Global Political Economy: Mercantilism and Liberalism, 2014

Gilpin, R. The political economy of international relations. Princeton University Press: New Jersey, 1987

Nada, Eid, H. International Political Economy and Its Relation to International Finance.

Academic journal article American Academic & Scholarly Research Journal, 2016

Strange, S. States and Markets: An Introduction to International Political Economy. London: Pinter, 1994

Veseth, Michael. What is International Political Economy?  UNESCO international encyclopedia project, 2004

Walzenbach, Günter. Global Political Economy. 2016

Woods, N. International Political Economy in an Age of Globalization. New York: Oxford University Press, 2008

The terms offer and acceptance. (2016, May 17). Retrieved from

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"The terms offer and acceptance." freeessays.club, 17 May 2016.

[Accessed: March 19, 2024]

freeessays.club (2016) The terms offer and acceptance [Online].
Available at:

[Accessed: March 19, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 19, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 19, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 19, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 19, 2024]
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